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Help Protect Social Security – Support H.R.4170

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March 2012: The Federal Reserve Bank of NY released numbers that many found startling; 36 Billion dollars (4.2%) of our nation’s total student loan debt belongs to Americans 60 and older.[1]

An additional $98 Billion (11.3%) belong to soon-to-be seniors ages 50-59, and those between age 40 and 49 owe $142 Billion (16.4%).
These age groups, who should be planning for, or enjoying retirement, account for 32% of our nations total student loan debt!
While these numbers may surprise some, it is no surprise to those of us struggling under the weight of this debt.

Normal financial setbacks such as illness, divorce, and unemployment can create the impossible situation during the best of times. But during this recession those setbacks have had exponential effects—effects from which seniors do not have enough time to recover.
• Widespread layoffs and pay cuts can create choices such as buying groceries or making student loan payments.
• Using home equity to pay off SL balances may have been an option at one point but no more.
• The option to borrow against retirement savings went out the window when those accounts became devalued.

We believed that college was the path to a better future, greater economic security for ourselves, our families; that it would give us the opportunity to make meaningful contributions to society. This is the message we imbibed from parents, media, society and Government—the social contract.
As an investment in our future, we were told that student loans are the best kind of debt to have—it is not.
We now know that student loans are the worst of all possible debt to have. It is a ball & chain we will drag with us to our graves if we don’t change this now. For those with Federal loans this debt dies with us but for those with private loans this debt becomes part of our estate.
The reward for honoring our end of this social contract is that our monthly Social Security checks are garnished up to 15%--or soon will be.

• Consumer protections have been stripped away. Unlike other unsecured consumer loans there is no statute of limitations and these loans cannot be discharged in bankruptcy.
• Also unlike other unsecured consumer loans, the interest on student loans is capitalized--this practice is exempt from State usury laws.
• Lack of disclosure. An alarming number of borrowers did not understand that interest would be capitalized—or even what capitalized interest means. A student utilizing the built-in in-school deferment is shocked to learn at graduation that they owe substantially more than what they borrowed—they are already deep in the hole due to capitalized interest.
• The cost of tuition has risen 827% since 1980. [2] This increase has virtually nothing to do with the cost of instruction, which has merely kept pace with inflation.[3] This far outweighs even out-of-control health care costs, which, by comparison, have increased 436% since 1980.
• Loans in default are subject to *Social Security offsets*.
• Borrowers with defaulted Federal loans are subject to administrative offsets to their Social Security.
• For those on the Income Based Repayment plan (IBR) in which the remaining balance is forgiven after 20-25 years, that balance is treated as taxable income.[4] The IRS can then garnish Social Security for this forgiven balance at a rate of up to 15% of each check.[5]
• We know that more than one in four older women rely on Social Security for nearly all of their family income.[6] Offsetting these benefits creates an appalling hardship.

The current student loan system is geared against the borrower. It is so far removed from its originally intended purpose when it was created in 1965 as a part of Lyndon Johnson's Great Society [7] that it is barely recognizable--purchased by the banks from our lawmakers!

Prior to 1976: Both Federal & private student loans were dischargeable in bankruptcy without exceptions.

1978: Discharge exceptions were implemented. The ability to discharge was limited to loans in repayment for 5 years.

1990: The 1978 five-year period was extended to seven years.

1998: Seven-year rule eliminated--Federal student loans can no longer be discharged in bankruptcy.

2005: Private student loans are no longer dischargeable in bankruptcy.[8]

The argument of “undue hardship” must be made to discharge student loan debt in bankruptcy and it is nearly impossible to prove. The term “undue hardship” is ambiguous at best and is not clearly defined in the bankruptcy code.
While Sallie Mae has recently stated they would not oppose discharge of student loan debt, after 5-7 years of repayment, we have yet to find one case where they have not objected to a petitioner’s request to discharge.[9]

Making student loans non-dischargeable in bankruptcy was not in response to borrower misuse. In fact when student loans were dischargeable less than 1% of those loans were actually discharged. [10]
These changes were the result of lawmakers pandering to the banking industry. For many of us these changes occurred after we signed our contracts—the rules changed in the middle of the game.
The rhetoric used to gain support of these changes was based on the fear of “what if”, rather than on facts. There are no studies showing student loan borrowers are more likely to file bankruptcy than borrowers of other consumer loans.

Between 1999 and 2011, Sallie Mae alone has spent $28,800,000 lobbying to gain and maintain control of these practices.[11]
Since 1989 Sallie Mae has been the single largest contributor to John Boehner's leadership PAC.[12]
And Republican Presidential Candidate Mitt Romney’s close ties to for-profit Full Sail University have proven lucrative for his campaign. Full Sail’s Chief Executive, Bill Heavener, is a major campaign donor and a co-chairman of his state fund-raising team in Florida.[13]

Prior to 2010 lenders, such as Sallie Mae, provided Government guaranteed student loans.

1) Capitalized Interest:
As of February 2012 outstanding Federal loans serviced by Sallie Mae currently total more than $453 Billion. This number is up 32.92% from February 2011 although they did not make new Federal loans in 2011—this increase can only be accounted for as the result of capitalized interest and fees.[14]

2) Minimal Risk:
Lenders assume only a 3% risk on their investment as the government compensates the lender 97% of the entire outstanding balance when a borrower defaults.
It’s easy to do the math: a $50,000 loan paid by the borrower is worth far less to the lender than a $50,000 loan which has grown to $200,000 and is paid by the government at a rate of 97%, or $194,000. This comes at the expense of taxpayers.[15]

3) Significant Subsidies:
Lenders of Federal loans also receive a subsidy called Special Allowance Payment, which sets the interest rate that lenders are guaranteed to receive on a FFEL loan (while FFEL loans are no longer being made there are still millions of them out there). This rate adjusts automatically every three months to reflect short-term market interest rates plus 1.79% (prior to 2008 the rate was 2.3%). That guarantee, or insurance, is a significant subsidy.[15]
The Special Allowance Payment is designed so that it bears no relation to the interest rates that student loan borrowers pay. Thus, lenders do not earn interest from the borrower; they earn it from the federal government, who then attempts to collect from the borrower in the form of wage, tax return and Social Security administrative garnishments.[16]

They Win, everyone else loses!
With lenders clearly making more money from defaulted loans than loans in good stead, what is their incentive to be responsible? No wonder it is their practice to drag out the repayment process by forcing deferments (which eventually run out), capitalizing interest along the way and then finally collecting on absurdly inflated balances from the Government when the loan finally defaults.[17]
In short, it is an extraordinary scam that not only does great harm to the borrowers but our national coffers and the American taxpayer; this predation is even more egregious when done to senior citizens.

Full text:

This bill is a call to action…it demands that congress work on behalf of American citizens.
H.R.4170 was introduced March 8, 2012 by Rep. Hansen Clarke and currently has the following co-sponsors:
1. Rep. Karen Bass [D-CA33] (joined Mar 19, 2012)
2. Rep. Janice “Jan” Schakowsky [D-IL9] (joined Mar 26, 2012)
3. Rep. Chellie Pingree [D-ME1] (joined Mar 27, 2012)
4. Rep. John Conyers [D-MI14] (joined Mar 29, 2012)
5. Rep. Bob Filner [D-CA51] (joined Mar 29, 2012)
6. Rep. Yvette Clarke [D-NY11] (joined Apr 17, 2012)
7. Rep. Henry “Hank” Johnson [D-GA4] (joined Apr 17, 2012)
8. Rep. James “Jim” McDermott [D-WA7] (joined Apr 17, 2012)
9. Rep. James “Jim” Moran [D-VA8] (joined Apr 17, 2012)
10. Del. Eleanor Norton [D-DC0] (joined Apr 17, 2012)
11. Rep. Bobby Rush [D-IL1] (joined Apr 17, 2012)
12. Rep. Edolphus “Ed” Towns [D-NY10] (joined Apr 17, 2012)
13. Rep. Charles Rangel [D-NY15] (joined Apr 18, 2012)

While the title of the bill reads “The Student Loan Forgiveness Act of 2012” it is more about a reasonable repayment plan than it is about forgiveness.
This 10-10 plan will help the majority of student loan borrowers of private, Federal and Parent PLUS loans, INCLUDING SENIORS.
The borrower makes payments for 10 years equal to 10% of their discretionary income. After those 120 payments the balance is forgiven and it NOT treated as taxable income, which is a significant feature for seniors as it protects our Social Security benefits.

Is it enough? Of course not, but it is the first solution we have seen come before congress that will actually help protect senior borrowers Social Security.
We do have time for the many wrongs to be made right--we need this relief now.

• Advocate for us in Washington—let them know how critical this is to seniors and why we need reform. Tell them to recover any perceived losses form the lenders and keep their hands off our Social Security.
• Become an *Endorsing Organization* of H.R.4170 on
• Educate AARP members and encourage them to sign the following petition:

6 AARP Public Policy Institute report “Social Security: A Key Retirement Resource for Women.”
10 1977 study by the General Accounting Office
11 Center for Responsive Politics

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